The Alter Ego Doctrine and Taxes

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Jason B. Freeman

Jason B. Freeman

Managing Member


Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

What is an “alter ego?”  The phrase is Latin, translating to “second I,” “another I,” or “other self.”  In the federal tax context, the alter ego doctrine comes into play where the IRS believes that one person or entity should be considered “one and the same” as the taxpayer in the eyes of the law, allowing the IRS to collect the tax liability from either the taxpayer or the taxpayer’s alter ego.

What is The Alter Ego Doctrine?

Under the alter ego doctrine, the IRS may seize property that is held in the name of a third party if the third party holds the property as the taxpayer’s alter ego. That is, the law may allow the IRS to levy on property or rights to property held by a taxpayer’s alter ego entity (e.g., a trust, corporation, or LLC) to collect the taxpayer’s tax liability.

Simply put, for tax-collection purposes, a taxpayer and his/her alter ego are considered one and the same — and its assets are available to the IRS to collect the taxpayer’s tax liability.

The theory behind the doctrine is largely based on the premise that the taxpayer and the alter ego are so intermixed that their financial affairs cannot, or should not, be separated.  As such, its application focuses on the relationship between the taxpayer and the would-be alter ego.

The Nominee Doctrine Compare

The alter ego doctrine has several elements in common with the nominee doctrine.  It differs from the nominee doctrine primarily in focus: The nominee doctrine is focused on the relationship between the taxpayer and property—for example, where a taxpayer places legal title to property in the hands of a third party (such as an LLC or trust) while retaining beneficial use and ownership.  The nominee doctrine, in other words, focuses on particular property.

The alter ego doctrine, on the other hand, treats an entity as though it were the taxpayer for tax collection purposes.[1]  It is not applied on a property-by-property basis; rather, it potentially applies to all of the alter ego’s property.

When Does the Alter Ego Doctrine Apply?

The doctrine is grounded in equity.  And, thus, courts have allowed its application “whenever necessary to avoid injustice” or where public policy demands its application.  For example, courts have allowed the IRS to invoke the alter ego doctrine where a corporation has been used to “evade a public duty, such as the paying of taxes” or when a taxpayer has “constructed paper entities to avoid taxation or the payment of taxes when those entities are without economic substance.”  Under these circumstances, federal courts have allowed the IRS to pierce the corporate veil in order to collect taxes.

What Factors Give Rise to Alter Ego?

Whether an alter ego relationship exists between a taxpayer and another entity (e.g., a corporation, trust, individual or other entity), is based on the facts and circumstances.  For example, the Fifth Circuit court of appeals has held that the following factors are important in establishing such a relationship:

Other courts have emphasized that the following  facts are important with respect to the analysis in a federal tax case:


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[1] In theory, unlike section 6901, the doctrine does not impose a defaulting taxpayer’s liability on another person, but treats an entity as the taxpayer for tax collection purposes.